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Why Other Studios Are Fans of Disney's (DIS) Franchise Formula

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The Walt Disney Company (DIS - Free Report) beat earnings and revenue estimates in second-quarter fiscal 2018, with the credit going largely to the success of Black Panther. Understandably, Black Panther has exceeded expectations proving yet again that the best way to ensure box office success is to take the franchise route.

It isn’t only Disney, other big studios have also been banking heavily on the franchise formula over the past few years. Marvel Comics’ characters have enjoyed tremendous popularity over the years and have given huge returns to the makers. But Avengers and others might lose their superpowers one day and the studios will need Plan B to race ahead of tough players like Netflix, Inc. (NFLX - Free Report) and Amazon.com, Inc. (AMZN - Free Report) that are changing the entire movie landscape.

Disney Rides High on Franchise Power

Disney’s adjusted Q2 earnings climbed 23% from the year-ago period to $1.84 per share, surpassing the Zacks Consensus Estimate. The company’s overall quarterly revenues also popped 9% to $14.55 billion. The media giant in its earnings report said that its results were significantly helped by Black Panther, which fetched more than $1.3 billion from worldwide ticket sales.

What Black Panther did for Disney in the last-reported quarter seems to be getting repeated by Avengers: Infinity War in the ongoing quarter, with the film already having grossed $1 billion at the global box office within 11 days of its release. According to Box Office Mojo, it is the 17th Disney film and the sixth Marvel film to cross the $1 billion box office milestone.

Understandably, franchise films have been Disney’s elixir for the past few years with the likes of Star Wars: The Force Awakens (2015), Captain America: Civil War (2016) and Star Wars: The Last Jedi (2017) all topping the box office. Even Black Panther’s performance to a great extent helped the company’s television business that is suffering from an industry-wide decline in pay-TV viewership. Disney has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Franchise Films Boost Other Studios

Not only Disney, even Time Warner, Inc.’s Warner Bros. has franchises like Fantastic Beasts, Lord of the Rings and Matrix, while Universal Pictures, owned by Comcast Corporation (CMCSA - Free Report) , has the likes of Jurassic Park, The Fast and the Furious and The Mummy.

Sony Pictures Entertainment, a division of Sony Corporation of America (SNE - Free Report) , too has been tasting success with franchise films, with Jumanji: Welcome to the Jungle and Spider-Man: Homecoming becoming its two highest grossing films in 2017. Moreover, Sony is gearing up for its next Spider-Man film Spider-Man: Into the Spider Verse (3D) that releases in December.

Warner Bros.’ Fantastic Beasts: The Crimes of Grindelwald is up for release this year, while Godzilla 2 releases in 2019. Universal Pictures’ Jurassic World: Fallen Kingdom releases in June, while Fast & Furious 9 and 10 and Jurassic World 3 are again in the pipeline.

What’s Next for Studios When Franchise Films Lose Appeal?

Needless to say, the franchise chapter may close one day, leaving the studios on the lookout for new growth avenues. On May 8, 2018, Disney said that more Avengers movies could be on their way given the success of Avengers: Infinity War.

Although the fourth Avengers film, due for a 2019 release, will be the concluding one, Disney’s CEO Bog Iger said, “Given the popularity of the characters and given the popularity of the franchise, I don't think people should conclude that there will never be another 'Avengers' movie.”

Undoubtedly, Disney is exploring the franchise space further. A decade ago, the struggling Marvel Studios had sold the right of all its characters, with Fantastic Four and X-Men going to Twenty-First Century Fox (FOXA - Free Report) , while Sony got Spider-Man. Later, Disney bought the studio with the remaining characters.

Now, Disney is in a position to make films on characters owned by Sony and Fox. In fact, Disney together with Sony last year made Spider-Man: Homecoming and has now used Spider-Man in Avengers: Infinity War. That says a lot about the studios’ plans with the franchise films.

Understandably, the reboot formula with a new cast is one easy way for studios to continue with franchise films. If Spider-Man has succeeded in not losing its appeal since 1962, it’s likely the same can be done with the other characters.

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